Separating Fact from Fiction About the Child Tax Credit

Immigrants and the child tax credit—the refundable credit enacted by Congress in 1998 to keep children from falling into poverty—are back in the news again. This time the claims being leveled are even more hyperbolic and misleading than before. Sens. David Vitter (R-LA) and Marco Rubio (R-FL) recently introduced separate legislation seeking to limit eligibility for the tax credit and are actively politicizing the issue while pushing for a Senate vote. The bills purportedly aim to block undocumented individuals from receiving a child tax credit.

These two legislators have justified the renewed attack on this refundable credit based in part on the representation of a lone tax preparer—a self-proclaimed whistleblower—who claims fraud is rampant in the program. Wittingly, or most likely not, the story told by this purported whistleblower is also an admission that he himself committed obvious and blatant tax fraud—a felony punishable by up to three years in prison and a $250,000 fine.

Given the tax preparer’s claims of programmatic abuse and given his own admission of fraud, one would assume these senators would be focused on rooting it out. Yet neither bill tackles the question of fraud or abuse in the program.

Instead, Vitter and Rubio have pulled a classic bait and switch. They have used concerns about abuse (concerns that they have helped sensationalize) to justify another agenda entirely: drastically restricting eligibility to millions of children in low-income families.

Let’s be clear. The central talking point being used to justify these bills is that billions of dollars in tax credits are being unlawfully claimed by undocumented tax filers. As we describe below in debunking the top four myths about immigrants and the child tax credit, that argument is patently and demonstrably false.

First passed by Congress in 1997 with overwhelming Republican support as part of the Taxpayer Relief Act, the child tax credit is intended to benefit children and to help keep them from falling into poverty. Eligibility to claim the credit is tied to the child and not to the parent. The child being claimed must be under the age of 17, a legal dependent of the tax filer, have lived with the filer for more than half of the year, and be a U.S. citizen, a U.S. national, or a U.S. resident alien. The tax code explicitly requires documentation of the child’s citizenship or residency, but not the claimant’s.

Undocumented workers who contribute payroll taxes and file their taxes using an Individual Taxpayer Identification Number, or ITIN (used for people who are not eligible for a Social Security number to file their taxes), are not committing fraud by claiming the child tax credit for their children living with them in the United States. They are in fact complying with both the letter and the intent of the law.

Myth No. 2: Taxpayer dollars are being given to children living in other countries or children who are not the dependents of the claimants

The tax forms that must be filed in order to claim the child tax credit require the submission of the child’s Social Security number or ITIN that proves they are a U.S. citizen, a U.S. national, or a U.S. resident alien. The child must also have lived with the filer for more than half of the year in order to be eligible for the credit. Additionally, if more than one filer attempts to claim the same child, an automatic audit is triggered by the Internal Revenue Service. There is no evidence that such double claiming occurs frequently and, in any case, it will be resolved via an enforcement audit. Further, tax returns are flagged for audits when filers attempt to claim suspicious deductions such as claiming a large number of dependents. A low-income filer who files such a claim would likely be reviewed before a refund is administered.

If there are instances of filers claiming credits for children who are living outside the United States or who are being claimed by others, that is an abuse of the program and should be penalized through IRS enforcement. The possible existence of some fraud or abuse does not justify restricting a program that has effectively kept low-income children from slipping into poverty. What’s more, there is far more costly and rampant abuse in other areas of the tax code.

Myth No. 3: Undocumented immigrants are receiving huge refund checks due to the child tax credit and are getting rich from it

The average household income for filers without a Social Security number claiming the additional child tax credit refunds in 2010 was about $21,240, less than half the median income in the United States that year. And according to the U.S. Treasury Department, the average child tax credit refund was about $1,800, which would require at least two dependent children. Even for lower-income families and those living in rural communities, the annual cost of raising a child is around $10,000 per year, so any claim that immigrants are “getting rich” is erroneous at best.

If the real concern is that tax fraud or abuse is draining the Treasury’s coffers, it is curious that Sens. Vitter and Rubio elected to target their focus on this particular program. At most, the abuse would amount to millions of dollars in lost revenue, which is only a small portion of the $4.2 billion claimed by ITIN filers. That is not to say the amount is insubstantial, however, and we can all agree that any instance of fraud should necessarily be rooted out. But if the concern is truly about the nation’s bank account, it would make much more sense to prioritize recouping unreported business and corporate income, which was more than $170 billion in 2006 (the latest year for which there are data).

Myth No. 4: The only way to prevent abuse of the child tax credit is to restrict eligibility to only citizen children or children with citizen parents

Proponents of restricting eligibility to the child tax credit want to throw the baby out with the bathwater, attacking a credit designed to help low- and moderate-income families, rather than going after fraudulent usage. Further, restricting eligibility would heavily and disproportionately impact people of color. Latino children, for example, are more likely to live in poverty than any other racial or ethnic group and more than half of the 6.1 million Latino children in poverty are the U.S.-born children of immigrants. Pushing a greater number of children even further into poverty is hardly the solution to our economic problems.

A more targeted way to limit the fraud would be to require paid tax preparers to obtain proof of residency of the child prior to electronically filing a tax return. The for-profit tax preparation industry should bear the burden of documenting residency of the children because the preparers, in many cases, are to blame for the false claims. Requiring preparers to obtain the documentation would not impose any new burden on the IRS and would assist the government in ensuring that tax preparers are diligent.

Conclusion

Sadly, the current attempts to restrict eligibility for the child tax credit follow in a long line of proposals in the current Congress that seek to offset governmental costs by taking away services from low-income Americans (in this case the U.S.-born children of immigrant parents) rather than looking to the wealthiest Americans who can well afford to pay more. Taking away this important program from children who just happen to have undocumented parents will not fix the problem of tax fraud or solve the debt crisis, but it will significantly harm some of our most vulnerable citizens.

Marshall Fitz is Director of Immigration Policy at the Center for American Progress. Sarah Jane Glynn is a Policy Analyst with the Economic Policy team at the Center.